Good morning to you all, and thank you very much for joining us on our second day of the Bank of America Merrill Lynch Power & Gas Leaders Conference. To kick things off this morning, we’ve got the first panel here that talks about the future direction of U.S. power supply. And I have with me two distinguished guests, Tony Alexander and Jim Robo.

Tony Alexander is the President and Chief Executive Officer of FirstEnergy Corp. He is the leading proponent of electric competition and has participated in many national and regional forums on key issues facing the electric utilities industry. Tony received his Bachelor of Science & Accounting and Law degrees from the University of Akron and has had a long career at FirstEnergy in a variety of financial and legal positions.

Jim Robo is President and Chief Executive Officer of NextEra Energy. Prior to his position at NextEra Energy, Jim was President and Chief Executive Officer of a major division at GE Capital. Jim received his Bachelor of Arts degree summa cum laude from Harvard College and his MBA from Harvard Business School. Gentlemen, thank you very much, I appreciate you being here with us on the panel today.

Just a quick setup of logistics here. Most of the panels we’ve had so far in the conference, we’ve suggested to the companies that they do not necessarily need slides. In this instance, because both companies have a number of issues that they would like to discuss, we are going to have slide presentations for this panel. I’ve asked each of the speakers to speak for about 5 to 10 minutes. After that, we will go into Q&A and take questions from the audience as well.

Tony?

Tony Alexander

Thanks, Brian, and besides that we don’t take instructions very well. So, we will do the best we can, try to stay on your schedule, and good morning everyone, I am glad to be here today. The weather is absolutely beautiful here in New York, and I hope you all get a chance to enjoy it some. First off, there is probably something here that flips these. Let’s have little fun this morning, anyways. Read this at your leisure, obviously the Safe Harbor statement. I am not going to try to go through it, again because of the time restriction that Brian put on us, but I think most of you are pretty familiar with it.

Okay, let’s talk about some of my thought on power supply. Well, I think I will just give you an example of what’s going on in PJM, so that you can kind of get a sense for some of the issues that we are dealing with. And quite frankly, I think this chart tends to sum up much of what’s happening in the capacity markets otherwise. Now remember the capacity markets themselves, about in the last auction, about 74% bid zero. So we will have to think about the character of that market to begin with when so much generation is either a price taker or is bidding for getting something rather than nothing, and that’s a pretty significant phenomenon that is going on in that market at this point.

But as you can see when you think about it, the installed reserve requirement in PJM now over 81% is satisfied through demand response, energy imports, and energy efficiency. That’s a significant increase over the past years, about 50% of the reserve required is made up of demand response alone. And while we think in terms of this as an auction for (inaudible) that just took place, better remember based on history, about 30% of that demand response capacity is covered in incremental auctions that PJM requires to undertake during the period, so much of that may not actually be available in the amount that was at least bid into the auction.

And obviously, we hope energy efficiency and imports from wherever they are coming from now, can find their way into the Ohio Valley when the weather is warm or hot all across that region typically. But as you can see that percentage is increasing and it is replacing physical assets that are currently operating. Right now, if you put those in number terms, it is 21.9 gigawatts in 2016-2017 versus about 4.2 gigawatts in 2010-2011, and as all of you are aware as a result of the economic stagnation generally, we are not seeing that type of load growth in PJM or perhaps anywhere in America.

So what do you do? What do you do when the market is shifting away from physical assets to softer forms of providing reliable service to customers over the long-term? Well, you obviously have to make some pretty tough business decisions. You have to think about your business in a different way. You have to particularly be concerned about businesses that are facing significant increases in environmental spend in a market that’s saying that effectively that asset may not be needed. And obviously, FirstEnergy has taken a number of aggressive steps in that vein to reposition its fleet and deactivate assets that are no longer needed.

So, when you think about what we have done, we have essentially changed the character of our competitive business, and we have done that through a series of actions that I am going to try to highlight for you today. We have obviously reduced the size of our fleet and the mix of our assets. Once we complete the deactivation scheduled for next month, the West Virginia asset transfer, and the sale of the hydro assets, which by the way we are disclosing today at price of $400 million for the hydro assets. The fleet will be less than 50% coal, over 30% nuclear, and more than 20% gas, hydro, wind, and solar.

And while the competitive generating fleet is about the same size as before the Allegheny merger, it is on a much stronger platform of units, more environmentally controlled with overall improved heat rates and much more efficient. All of the going forward coal fleet is essentially river supported now, and is concentrated in three primary sites. We’ve also reduced our capital spend by about $875 million in this business alone and our MATS expenditures for the competitive fleet will be less than 300 million, and in total for both the competitive and the regulated fleet, we now expect MATS spend to be around $525 million, which is a further reduction in our MATS total spend from what you told you at the second quarter earnings call.

The remaining capital over the next several years will largely support our nuclear program, with about 65% of that tied to new steam generator at Davis-Besse which will go in service in 2014, and new vessel head and steam generators at Beaver Valley Unit 2 which will go in service in 2017, most of those investments support the long-term life extension of those facilities. Overall, these recent moves put our competitive operations in a much stronger position and capable of not only supporting successful operations during this continued stagnant economic period, but well positioned to take advantage of improving markets as the economy recovers.

We expect cash flow to be cash flow positive next year, including the repurchase of a portion of the sale leaseback interest, and we expect to have solid credit metrics of less than 40% debt-to-cap and more than 20% FFO-to-debt, all of those as a result of the repositioning of our fleet that will take place following -- throughout the remainder of this year.

As we reposition the competitive fleet, our focus is now pivoting to growing our regulated operations, particularly on the transmission side of our business. As I mentioned at our second quarter call, we have significant opportunity to invest in transmission and you can see that the size and breadth of our transmission operations in Ohio, West Virginia, Maryland, New Jersey and Pennsylvania, they are substantial. A major part of them are owned by an independent transmission company ATSI and we intend to invest in this size and scale because it gives us a platform to think differently about our business going forward.

Not only will we improve overall system reliability as a result of these investments, probably more importantly from your prospective, they are going to provide a more stable and consistent near-term path for growing our earnings. Our team is nearing completion of our multi-year transmission strategy. We don’t expect this to be a one-time show, we expect this to continue for several years and our plan is to provide very detailed description of both, projects, timing and the financial impacts of these investments at the November EEI conference.

Our regulated businesses have always been and will continue to be an important part of our strategy, but they will become even more significant percentage of our earnings as we go forward. With the repositioning of our competitive operations, and importantly the reallocation of capital through our regulated businesses, our earnings will be more transparent and with less exposure to power prices. As always we will be focused on delivering value to our shareholders, thank you for your continuous interest in FirstEnergy, I look forward to seeing most of you or all of you at the EEI conference in November. Thank you.

Jim Robo

Good morning everyone. Hopefully we will get -- here we go. I am going to share a few thoughts this morning on our company. First, please take note of our cautionary statement and risk factors. We laid out in March at our Investor Conference, our investment proposition, it’s pretty simple, above average and very visible growth through 2016, terrific and increasing cash flow from operations growing significantly this year, significantly up over last year and we are growing as well from ’13 to ’16 by roughly about 10% compound annual growth rate from a cash flow standpoint. It is a very moderate risk portfolio, a very strong balance sheet and great dividend growth prospects, so a very simple value proposition.

We are off to a terrific start so far in the first half of this year and we remain well positioned to earn in the upper half of our guidance range that we gave at the beginning this year of $4.70 to $5 a share.

Let me spend a moment on this chart, when we laid out in March; we laid out two cases in March at our Investor Conference what I call a backlog case and I think we maybe call it the baseline case in March. Had about 15 billion of capital in that over the next four years between the two businesses, that underpinned, we said that would underpin 5% compound annual growth of EPS through 2016 and that was all things that had already been signed from a contract standpoint or already been approved by the commission.

I also said that we were going to work very hard to originate $9 billion of incremental growth projects, to be able to deploy a total of roughly $24 billion of capital between 2013 and 2016 and pleased to say that we have made terrific progress on roughly $5 billion of that CapEx spend and I want to spend just a minute talking about some of the elements of that. On storm hardening we follow the plan to spend an incremental $400 million to make our resilient network even more resilient to storms that we should get a commission ruling on that here in October. We are moving forward with $700 million of reliability investment that is going to improve our customer service which is already one of the -- we have one of the best services in the country as measured by minutes of outage and we are targeting to improve that even more through these investments over the next four years and we are working through the approval process on a ticker upgrade at FTO as well of $800 million.

I think most of you know that we announced our plans for a third natural gas pipeline into the state of Florida at the end of July. That is opportunity for a FERC regulated entity affiliate of FTO to invest $1.6 billion in a project that overall was about $3.6 billion project that will bring terrific liability benefits and access to low cost natural gas to the state for years to come.

On the energy resources side, we have made great progress in our wind business. We have signed close to 1000 megawatts of power purchase agreements. The wind business is making terrific progress. I think for those of you who don’t know, on Friday the IRS came up with additional guidance around the start of construction language associating with the PTC extension that happened earlier this year. And I think most of you know when PTC was extended in January this year it was extended for a year, but instead of having to be in service by the end of this year we needed to have the wind project have started construction. Now start of construction is a turn of art in the tax world and the IRS has spent the better part of this year trying to explain exactly what start of construction means. And they came out with some additional guidance on Friday where fundamentally they laid out a Safe Harbor where if you had a project identified by the end of the year, 5% of the money spent on that project by the end of the year and you have brought in service by the end of 2015 you require approval of PTC.

So effectively, if you have a big pipeline and you have equipment and you have projects, you will be able to continue investment in the wind business through the end of 2015. We have been thinking about when we laid out our capital plans that we have been thinking about this PTC extension really as a 2013 and 2014 phenomena, but the guidance out of the IRS on Friday means that effectively for big projects like us, we’ve gotten an incremental year extension of the production tax credit. So that’s terrific news for energy resources.

Also making great progress in solar, we’re continuing to see cost come down and we’ll continue to see an opportunity on both the utility scale as well as on the distributed side to continue to make investments in solar as well.

So, overall we made I think good progress, it’s not all complete yet on this first 5 billion of the 9 billion, but I remain very optimistic that we’re going to able to originate $9 billion of very strong growth projects that we will be able to as a result of that earn at the top-end of the range that we laid out for 2016. I have the team very focused on three things; execution, cost management and growth. And I feel very confident that we’ll able to originate those growth projects that I just talked about, if we do we should be able to earn $6 a share in 2016, I have the team very focused on earning $6 a share in 2016.

Just a quick word on our dividends, we in February 2012 announced that the board had started to raise or target payout ratio to 55%. We’re in the process of getting there. We were quite there in 2013. We’ll get there in 2014. And what that means is, off a 2011 base that we will have grown our dividend per share at a 10% annual growth rate. Going forward, I would expect that our dividend would grow at least as fast as our earnings do going forward.

So, I appreciate your time this morning and look forward to all your questions. Thank you.

Question-and-Answer Session

Brian Chin

Great, thank you both for your initial comments. I guess to kick things off from a Q&A standpoint, Tony when I listened to your comments, it seems as though FirstEnergy has been involved in the shrinking and repositioning of the competitive merchant fleet and pivoting on a focus towards regulated asset growth?

At the same time, Jim when I heared your comments, I see a substantial growth in regulated assets, long-term contracted assets. And so it seems as though the shift in emphasis is towards long-term contracting, towards regulated asset growth, very much away from deregulated, competitive, open merchant type assets. Is the trend here -- are we witnessing actually the slow devolution of the integrated utility business model, are we inevitably moving back towards a regulated asset base?

Jim Robo

I will start, I guess, Brian, when you look around the country at the competitive markets, yes I think most of you know we sold several of our gas plants last year, and our thinking around that was frankly many of them were, by and large most of them were either merchant or soon to be merchant, and I am pretty bearish, merchant markets around the country, and it's because I think natural gas prices are going to be low for a very, very long time. Anything we see in our gas infrastructure business, every bit of information that we have gotten out of that suggests that when gas even starts to lift up a little bit, the economics of shale gas and shale oil production have continued to get better and better, people are continuing to pour capital into that space. It's terrific for the country, and it's going to, it may very well be the most important thing that's happened to the U.S. economy since the Internet.

But fundamentally, it's terrible for the merchant business and the merchant electric business. And so, I am very bearish when you look across most of the markets because of gas prices, and Tony talked about in his first slide because people gaming effectively the capacity markets, political meddling with capacity markets in places like New England and PJM. Probably the only market that I think has some constructive elements to it and it's just because of good demand growth and the lack of reserve margin is Texas.

And even there, we did -- we have a big position in Texas and we did a very large project financing earlier this year and effectively took our money off the table if you will from our original investment and left ourselves at the upside on those assets. And so, I think the combination of low gas prices, no reserve margin pressure, and no demand growth combined with gaming of capacity markets is very bearish overall for the competitive market.

I think about it just the opposite, I think there is no question that there are things going on in PJM right now and in other capacity markets that the operators are beginning to recognize and will ultimately solve. The capacity has to be available. Grid will not run without generating plants. And the question will be what the makeup of those plants will be over time. When I think of natural gas and its low prices, there is perhaps a two-edged kind of sword. Yes there will be some impact on overall energy prices over time as a result of low input prices, but that's not necessarily bad as long as you can keep your own commodity price mix in the same range as whatever that energy price is.

But the fact of the matter is, if you think about it and if we can actually get out of our own way, the economic impact of a manufacturing renaissance within the Ohio Valley and in the area that can take critical advantage of the Marcellus, the Utica shale plays, to carry along the Western Pennsylvania, Eastern Ohio and Northern West Virginia area. That area is just poised to significantly grow, if in fact they can convert that ability to produce into a direct manufacturing line, I think there is a lot of people working very hard on trying to make that happen. We’re only a couple of steps away from the kind of the first couple of critical things that I think need to get put in place for that to occur.

And then you're going to have a significant amount of load growth inside of a market that in this timeframe is going to become as a result generation plant shutdown. I mean some of the numbers you look right now at don't even include plant. I mean PJM is still running a plant that we know they are going to shutdown in 2015. We know they are going to shutdown in 2015, they have already been announced to be shutdown in 2015.

This summer every single one of those plants was called on the 100% at the top, the balance that's happening in PJM is going to happen and it's going happen and it’s going to happen relatively quickly. And the question will be ultimately whether or not you can actually run an electric system without real generating assets to satisfy the reserve requirements and the other requirements of the system.

I think they recognize them and I think they are trying to work on it and I think they will. So in the end whether it's competitive or regulated when it comes to the new generation, prices are going to stabilize around impart with the commodity input prices, they always have. And regulated companies or regulated states aren’t going to allow generating assets to be built, necessarily that a way outside of trying to find the right mix of generation going forward.

And I don’t believe the country can operate without substantial generation. And the fact of the matter is, if we look at other countries the more renewable energy we add to the system the greater the reserve requirement is. In fact the more hardware you have to have on the ground. And the question is how you’re going to pay for it? If you’ll pay for it effectively then it won’t be on the ground and you will have a system that whether it’s on the regulated side or the competitor’s side is doing not to be able to satisfy the needs of customers. In fact that’s why we’re in business trying to accomplish anyway.

So I’m a tad bit more bullish on it, I think there is a lot of things going on now that PJM and others are recognizing and trying to deal with. I think you have complicated with a very stagnant economy overall. And I am still bullish that this country has to grow, has to grow at a much greater rate than it’s doing today. And that growth in demand is going to come as a result of using more electricity, it always has and there is no way you’re going to build a manufacturing base or any other side of the business is going to grow without using more electricity.

So those factors ultimately will come together and probably my sense is while we’re going through this period it’s interesting, it certainly is, but the fact of the matter is I’m much more bullish on the market.

Brian Chin

I guess just to ask each of you one more question before I turn things over to the audience. Tony does this mean then that we should be looking at a further consolidation in the merchant generation space? And then Jim from your perspective, Tony is making the argument that we add too many intermittent resources to the grid and the reliability becomes the question, are you seeing or are you running in that saturation point? And Tony did I not phrase your point properly?

Tony Alexander

No, I think you didn’t phrase it property.

Brian Chin

Okay.

Tony Alexander

I think as you add more intermittent sources I think everybody would recognize as you have to have resources behind those. As you rely more and more on them the resources if you just look at Germany as an example, the resources that are required to back that up don’t go away, so the effective reserves and the effective amount of capacity that needs to be available increases, that’s a decrease as a result of that. I don’t have a problem with renewables, renewables I mean I think they are important part of the overall equation, but you’ve got to recognize inside the system at least in many parts of the country some parts it might be a little different but in many parts of the country they’re not running.

Customers use it 24 hours a day, 365 days a year. They float it all over the place. We don’t have a system that tells you that you can use it only when the power plant is on, we are suppose to have the equipment, the assets in place to serve them 24 hours a day and if you could add an asset you want to do with an asset that produces 30% of the time is that all it can produce. And you better have something on the ground that can do it the other 70% of the time. We were 100% of the time when the wind didn’t blow as an example, or the sun doesn’t shine whatever that is.

So I mean those are kind of natural, even if we will rely on natural gas we’re forgetting that much of the natural gas plants that are being added are effectively interruptible plants. They have no inventory, more like a coal power plant. They don’t have take or pay rights on the -- and no interruption rights on the pipeline. Pipeline has to catch up with the ability to meet that requirement all the time. And this is summer time this year. Natural gas is in normally big demand. One of my peaking facilities had to switch the oil because they were cut off the pipeline.

Good thing we had oil capability to do that in order to meet that requirement, but if you do not that entire generating plant dances on the end of the pipeline requirement that’s not like a coal plant that’s sitting here with 30 or 60 days via coal or a nuclear plant that has whatever, 365 days of supply sitting in the core.

So all of those things have to be factored out and worked through as we make this evolution to new gas plants, are they in fact going to be intermittent and take care of the renewable side, we need it all. The question is how do you put it together and how do you make sure it’s fairly priced and fairly -- and have fair competition within those types of markets.

Brian Chin

Got it, in the interest of time why don’t we go ahead and turn it over to the audience and see if there is any questions.

Unidentified Analyst

[Indiscernible]

Tony Alexander

So we have looked at CNG vehicles, we also are looking very hard at electric vehicles in many of those same applications, it’s unclear to me which we are going to win, it is obviously not something that we spent an enormous amount of time working at. I mean we certainly follow the technology, follow the trends there but it’s not something that we’re spending a ton of time working at.

Brian Chin

Any other questions from the audience?

Unidentified Analyst

[Indiscernible]

Tony Alexander

I think one of the -- there is a lot of pieces both parts to that puzzle, but my own sense is that one of the kind of touchstone event and one of the things that I think is perhaps needed is for cracking facilities to be built in and round the Ohio Valley. There is several now being looked at, several now being proposed, several now being considered, but not unlike much of industry there is not enough certainty yet with respect to everything that we faced as an economy to actually begin to pull the trigger and say okay we’re going to make the investment. My own sense is that once that happens then the liquid plays become much more viable. The all shots of the liquids into manufacturing in that local region, so you don’t have to pipe up so much further and eliminate all that transportation.

When you look at that side of the equation and the manufacturing capability of that region historically and in the future -- if you’re going to locate a manufacturing plant in the United States that’s where it ought to be. We are going to be with them 8 hours drive or 10 hours drive or about 70 % or 60% of the U.S. population and the Canadian population. It is where the action is at and we just need to get things going in a way that allows that resurgence to occur. And I think like I said I think a big part of that would be having the ability to take local advantage of the liquid natural gas in a way in that area.

Brian Chin

Any additional questions from the audience? I want to go back to an earlier point that was made that with greater intermittent resources, we need to have a greater degree of thermal generation that acts as backup. Jim, I think I inadvertently had cut you off from your response, what’s your thoughts on that topic?

Jim Robo

So, I agree with some of the things that Anthony said, not all of them. I think the first piece is we’re a long way away in almost all parts of the country from a level of renewable penetration where it becomes an issue, that’s first. Second is, the renewables are for sure an energy resource, but they’re also a not a zero value capacity resource. And I think any study that you’ve ever worked at wind shows with the diverse portfolio in a place like Texas for example that for -- if you have the megawatt of capacity that it’s somewhere in the 0.2 to 0.3 range of actual capacity value, it’s a 20% to 30% of input.

Solar, I think, has the higher capacity value in that and this is also -- and I get frustrated with our own transmission team in Florida when we talk about renewable. And this is the business, it’s been run the same way for 100 years. This is a very conservative bunch of folks who run ISOs and that works because their job is to keep the lights on and that’s probably the fastest way they can lose their job if the lights go off.

So they should be concerned but they have dealt with intermittent demands for 100 years and the industry needs to get its head around a paradigm where you’re going to have both, some intermittent supplies as well as interment demands and be able to manage the grid accordingly. And I think there are places for example Colorado, Texas where they’ve made tremendous progress in terms of how to manage the work that way.

And with some natural gas is important, gas fired units are going to be important part of that mix, you’re going to be base loaded units as well. But I think the industry needs to be a little bit more forward thinking about how they integrate renewables into the grid and it will take time.

Brian Chin

Great, in the interest of time unfortunately we’ve run out of time on this panel. One last attempt here, questions from the audience if there any? No, gentlemen thank you very much for your time on the panel. Thank you.

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